1. GURANTEE

2. CONTRACT OF GUARANTEE
•  MEANING :- It is a contract to perform the promise or discharge the liability of a third person in case of his default. It is made to enable a person to get a loan or goods on credit or an employment . A guarantee may be either oral or written; express or implied.
Acc to Sec 126 – It’s a Contract to perform the promise or to discharge the liability of a third person in case of his default. 
 Illustration Bank Loan: C advances a loan of Rs to P, and S promises to C that if P does not repay the loan, S will pay it Shopping: S and P go into a shop. S says to the shopkeeper C, “Please supply whatever goods P wants now, and if he does not pay, I will.”

3. THERE ARE THREE PARTIES
Its involved i.e. the person who gives the guarantee known as the surety , the person in respect of whose default the guarantee is given known as the principal debtor and the person to whom the guarantee is given known as the creditor.

4. Essential elements of a valid contract Of Guarantee
Surety and Creditor must be capable of entering into a valid contract
Principal debtor can be a minor  in which case surety has the primary liability
Consideration received by the principal debtor is sufficient for the surety 
“ Anything done, or any promise made, for the benefit of the principal debtor, may be a sufficient consideration to the surety for giving the guarantee”
To Create valid contract there is must lawful offer and acceptance between both of the parties

5.  CONTRACT OF INDEMNITY
It is a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person. It is made in order to protect the promisee against anticipated loss.
There are only two parties involved i.e. the person who promises to make good the loss generally known as the indemnifier (promisor) and the person whose loss is to be made good called as the indemnified (promisee).

6. Characteristic of Indemnity
Lawful object: The Object of the indemnity contract must be lawful, otherwise it will consider as void.
Anticipated Loss: A contract of indemnity is a security for an anticipated loss.
Requirements of valid contract: Contract of indemnity being a species of contract must have all essentials of a valid contract like free consent, competence of the parties, consideration, etc
To Save other party: there must be a promise to save the other party fro some loss.
Covers only the actual loss: It covers only the actual loss may be due to the promisor himself or any other person and it covers only the loss caused by n event mentioned in the contract. The event mentioned in the contract must happen.

7. Cont…..Characteristic of Indemnity
May be express or implied: The contact of indemnity may be express or implied. An express promise is one where a person promises to compensate the other party in express term. Implied promise is one where the conduct of the promisor shows his intention to indemnify the other part y from loss.
Depend on good faith: This Contract on Good faith.
Right of Indemnity Holder
 when sued All damages which he may be compelled to pay in any suit with respect to any matter to which the promise to indemnify applies
All costs incurred in bringing or defending any suit
All sums paid under the terms of any compromise of the promisor.

9. Types Of Guarantee
Specific Guarantee: For a single transaction and is discharge on repayment of the particular debt it was given to secure.
Financial Guarantee: It means to guarantee the customer’s financial worth, Creditworthiness and his capacity to take up financial risk.
Performance Guarantee : It means to guarantee the obligation relating to the technical, managerial, administrative experience and capacity of customer .
Continuing Guarantee: For many transactions It may be for a fixed time It may be revoked After revocation it will not apply to future transactions It remains applicable for past transactions

10. Cont…..Types Of Guarantee
Joint and Several Guarantees: When two or more person jointly execute a guarantee, their liability may be jointly or Severally. In this each co-guarantor is jointly and severally liable for the debt .
Limited Guarantee: Incase of limited guarantee, the guarantees have some clauses which either restrict the liability of guarantor or limit the scope.
A guarantee my either be for the whole debt or a part of the debt : In case of guarantee for a limited amount because there is an important distinction between a guarantee for the only a part of the whole debt and a guarantee for the whole debt subject to a limit.

11. Revocation of Continuing Guarantee
 By Notice (Section 130) Revoked by surety as to future transactions by notice to creditor.
By death of the Surety (Section 131) By discharge of Surety: It is discharged by the following ways.
By way of any variance (Section 133) In terms of the contract w/o surety’s consent.
By release or discharge of P. Debtor. (Section 134)
By creditor compounding (favoring) with P. Debtor. (Section 135)
By creditor’s act/omission impairing surety’s eventual remedy (Section 139).
By creditor losing security against the P. Debtor (Section 141).
By misrepresentation of facts by creditor (Section 142).
By concealment of facts by creditor (Section 143).
By Failure of co-surety to join (Section 144).

12. Rights of Surety
Rights of Subrogation (Section 140): This is right of surety against P. Debtor. This arises on payment of the whole sum due or performance of the entire duty. Surety steps into the shoes of the creditor. And may now sue the P. Debtor if required.
Right to benefit of creditor’s securities (Section 141): Entitled to the benefit of every security which the creditor has against the P. Debtor at the time when the contract of suretyship is entered into.
Right to indemnity (Section 145): Entitled to recover from the P. Debtor whatever sum he has rightfully paid under the guarantee, but no sums which he has paid wrongfully. Right to be contributed equally in case where 2 or more persons are co-sureties.

13. Rights and obligations of creditor
Demand payment from surety.
If surety insolvent proceed against him too.
Not to change terms of contract.
Not to release principal debtor.
No extension or other facility to be given to principal debtor Department of Business.

14. TERMINATION OF GUARANTEE
The guarantee of a person or firm is automatically revoked under the following conditions unless otherwise agreed among the three parties. (1) When the Debtor Pays off the Debt. When the debtor makes payment of the loan to the creditor guarantee is automatically terminated as the principal contract stands cancelled. (2) Death of the debtor. If the principal debtor dies the guarantee automatically ceases to exist. The standing loan of the deceased has however to be paid by persons who are incharge of the estate. In case the loan is not paid the guarantor shall have to honor the obligations. (3) Notice of debtor’s Bankruptcy. If the bank receives a notice actual .or constructive of the debtor’s bankruptcy, the operation of a guaranteed account should immediately stop. The banker can demand the amount from the guarantor which was due from the debtor. (4) Change in the Constitution of the Firm. If there is a change in the constitution of the firm due to, say, the death of a partner or the expulsion or retirement of a partner, the future liability of the guarantor shall stand discharged. (5) Death of the Guarantor. The guarantee unless otherwise stipulated shall cease to operate when the notice-is received by the bank about the death of the guarantor. The estate of a deceased joint guarantor as already discussed is discharged from all liabilities. In case of the estate of deceased several and a joint guarantor, the estate is not released from liability.

15. Cont…..TERMINATION OF GUARANTEE
(6) Unauthorized Variation of Terms. If the principal creditor and the principal debtor vary the terms of loan contract without the consent of the guarantor, the guarantee is automatically revoked unless otherwise agreed. (7) Release of Securities by the Creditor. If the principal creditor releases the securities pledged with him as cover for loan without the consent of the guarantor, the guarantee, unless otherwise agreed, is terminated for all future advances.
(8) Creditor Inconsistent with the Rights of the Guarantor. If the creditor does not safeguard the interests of the surety whom he could reasonably do, the liability of the guarantor is then discharged. (9) Unauthorized Extension of Time to the Debtor. If the creditor without the consent of the surety grants extension of time to the debtor, or agrees to receive part payment of the loan, or promises, the debtor can not to sue him, the guarantee is revoked. (10) Release of Co-surety. If the creditor releases any of the co-surety, the remainder guarantor will be automatically absolved of the contract of guarantee. (11) Amalgamation of Banks. If two or more banks amalgamate, the guarantee will cease for all future transactions unless there is an agreement to the contrary.

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